STRENGTHS

Stability and political, economic and social consensus, linked with direct democracy

Close relations with the European Union, except for agriculture

Balanced public accounts despite relatively low taxation

Limited sensitivity of exports to exchange rates; high technology, quality

Strength of external surpluses

Low unemployment and diversified labour

European crossroads with excellent communication network

WEAKNESSES

Small, open and landlocked economy

Overvalued Swiss franc seen as a safe-haven, sensitivity to global economy

Level of dependence on commodity trade, financial services and the presence of multinational companies

House prices and high level of household debt (almost 200% of disposable incomes)

Presence of systemic banking establishments

Ageing demographic offset by immigration (foreign labour makes up 30% of the workforce)

RISK ASSESSMENT

Economy benefiting from European upturn and weakening franc

In 2017, the economy succeeded in adapting to the strong franc and achieved moderate growth. Thanks to productivity improvements and cost reductions, companies have largely restored their margins that had contracted as a result of the price cuts made to try and offset the appreciation of the Swiss franc following the lifting of the exchange ceiling by the Swiss National Bank (SNB) in January 2015. 2018 should see a sharp upturn. The business and consumer confidence indexes at the end of 2017 point towards this. Both domestic demand and foreign trade will contribute towards this. Despite the slow rate of growth in wages, the gradual improvement in the jobs market will help sustain household consumption. Investment is expected to rise, that by companies and households helping boost that by the Federation, the Cantons and Communes which is flagging. Thanks to the strong market outlook and with the production capacity utilisation rate in October 2017 reaching its highest level since 2012, there should be a strong upturn for equipment. Research and development, which also suffered following the appreciation of the Swiss franc, should also feel the benefits. To a lesser extent, cheap credit will also help boost construction, in particular residential. Exports are also likely to benefit from the positive movement in European, US and Asian economies, as well as from the drop in the real effective exchange rate since the second half of 2017. Pharmaceuticals (30% of exports) and engineering, not overly sensitive to prices, and thus to the franc, will remain strong. Machines, and industry in general (precision instruments, in particular medical, agri-food, electrical equipment, chemicals), financial services, commodity trading, tourism and transport are expected to perform better. The recovery will be less visible for watch making (11% of exports) which will again suffer with the slowdown in the Chinese economy. The outlook will remain difficult for retail trade, facing competition from foreign supermarkets in the border regions, and hotel and catering sectors, despite the gradual return of foreign customers, as well as for metallurgy, wood, paper, printing and clothing. Given these conditions, the number of company insolvencies, on the rise since 2014, should, at the least, stabilise, despite a rate of insolvency that will remain high in the construction, hotel, catering and retail sectors.

External accounts in surplus and accommodative monetary policy

There is a sizeable current account surplus. This consists of a surplus for goods (7.9% of GDP in 2016), as well as a surplus for services (2.9%) mainly generated by finance, licences and patents, exceeding the remittances of foreign workers (3.8%) which have increase significantly as the numbers of foreign workers have grown (in excess of 300,000). Even after removing the trade in commodities (3.9%), the surplus is still 4%. In addition, the recurrence of surpluses has enabled the creation of sizeable assets abroad to the extent that the net external credit position is equal to 130% of GDP.

In order to prevent any further appreciation in the franc, the SNB will have to continue its very flexible policies. Its key lending rate will continue to be negative (-0.75% in November 2017), as will the three-month LIBOR (range of -0.25 to -1.25%). However, the weakening on the franc should remove the need for the SNB to buy assets in foreign currencies, the balances of which are in excess of the GDP. The exposure of the banking system to property will continue at a high level as 80% of domestic lending is in this sector. The fact that only 45% of households are home-owners reveals how high the debt levels of borrowers must be. Households do however have assets that are equal to three times their debts and non-performing loans account for less than 3% of the total. In addition, the applicable prudential regulations have been and will be strengthened. Two establishments hold half of domestic assets within the sector, alongside Cantonal, cooperative and small private establishments. Whilst maintaining close external links, they have significantly reduced their balance sheets since the crisis with a focus on managing assets for third parties.

Solid public accounts

In compliance with the budget rule approved in 2003 by the Federation and replicated by most Cantons, a structural equilibrium has been enforced for the public accounts. In the event of significant worsening in local economic conditions, the Federal and Cantonal authorities, by a vote of the representative assemblies, would have significant expansionary budgetary discretion. The public debt is split equally between the Federation, on one hand, and the Cantons and Communes, on the other. The cost of this is very low with a zero or negative yield on bonds of 10 year or less (October 2017). Budgetary policy will remain uncontentious. The three parties on the right and centre-right (Democratic Union of the Centre, le Christian-Democratic People’s Party and the FDP-Liberal Party) will dominate the Federal Assembly and the National Council (executive of 7 members with a rotating annual presidency) until the next elections scheduled for 2019. The Socialist Party has two seats on the Council. The major areas of debate will remain immigration, relations with the EU, as well as reforms to pensions and corporate taxation.

Last update : January 2018

Payments

Bills of exchange and cheques are not commonly used in Switzerland, due to prohibitive banking and tax charges. The stamp duty on bills of exchange is 0.75% of the principal amount for domestic bills and 1.5% for international bills.

Commercial operators are particularly demanding regarding the formal validity of cheques and bills of exchange as payment instruments.

Domestic and international payments are commonly made by bank transfer - particularly via the SWIFT electronic network to which the major Swiss banks are connected. SWIFT provides rapid and efficient means of processing of payments, at low cost.

Debt collection

The Swiss legal system presents technical specificities, notably:

• The existence of an administrative authority “Enforcement and Bankruptcy Office” (e.g. Office des poursuites et des faillites / Betreibungs und Konkursamt / Ufficio di esecuzione e fallimenti) in each canton, with several offices at local government level which are responsible for executing court orders. Their functions are regulated by federal law. Interested parties can consult or obtain extracts from the Office’s records.

• A new, unified civil procedure code, created by a commission of experts and approved by the Federal Council, became effective in 2011. This code entailed the repeal of the 26 cantonal procedure laws which were hampering the efficiency of the judicial system. Nevertheless, lawsuits require the assistance of a lawyer who is familiar with the court organisation in the jurisdiction where the case is has been initiated, as well as with the language to be used in the litigation process (French, German or Italian).

Amicable phase

The debt collection process commences with the issuing of a final notice, preferably by recorded delivery (making it possible to accrue overdue interest). The notice requests the debtor to pay, within two weeks, the principal amount due, along with overdue interest calculated at the legal rate of 5% (unless otherwise agreed by the parties).

Legal proceedings

If payment is not forthcoming, the creditor can submit a signed and completed petition form (réquisition de poursuite) to the Enforcement and Bankruptcy Office. This Office then serves the debtor with a final order to pay within twenty days, effective from the date of notification of the petition.

While very easy to use by creditors, this procedure nonetheless permits debtors to oppose the order within ten days of being served, without having to specify grounds. In such cases, without unconditional proof of debt to cancel the debtor’s opposition, the only recourse for creditors is to seek redress through a formal legal action.

Before commencing formal legal action, it is mandatory to proceed to mediation or conciliation before a Justice of Peace. This excludes disputes falling within the jurisdiction of the Commercial Court of Zurich, or cases where both parties have agreed to ignore these proceedings and the claim is higher than CHF 100,000.

Legal proceedings entail initiating a formal (and now unified) procedure, comprising written and oral phases, with the possibility of examining witnesses during a court hearing. These procedures can last from one to three years, depending on the canton.

Conversely, where a creditor holds unconditional proof of debt signed by the debtor (any original document in which the buyer recognises his debt – such as a bill of exchange or a cheque), he may request the temporary lifting of the debtor’s opposition (main levée de l’opposition), without having to appear before the court. This is a simplified procedure, which is quick and relatively easy to obtain, and in which the court’s decision is based upon the documents submitted by the seller.

Once this lifting order has been granted, the creditor has twenty days in which to refer the case before the judge to obtain the debt’s release (libération de dette) and subsequently obtain an executory order.

Once the court hands down a final ruling, the Enforcement and Bankruptcy Office delivers an execution order or a winding-up petition (commination de faillite).

This winding-up petition enables the creditor to send the court a request for bankruptcy. Upon receipt of this request, the court will fix a hearing and send a written notice to attend to both parties.

If no payment is effected by the debtor and the creditor does not withdraw his request, the court will declare the debtor company bankrupt.

Either a court of first instance or a district court hears legal procedures. Commercial courts, presided over by a panel of professional and non-professional judges, exist in four Germanic cantons: Aargau, Berne, Saint-Gall, and Zürich.

Once an appeal has been lodged with the cantonal court, as a last resort for claims exceeding 30,000 Swiss francs (CHF), cases are heard by the main federal judicial institution - the Swiss Federal Court (Tribunal fédéral Suisse / Schweizerisches Bundesgericht / Tribunale federale svizzero), which is located in Lausanne.

Enforcement of a legal decision

Domestic judgments are enforceable once final. The court typically awards compensatory damages and orders to seize and sell assets. Punitive damages are not granted.

Insolvency proceedings

Restructuring proceedings (Nachlassverfahren)

Restructuring proceedings can be initiated either by the debtor or the creditor. The administrator takes the necessary measures to prepare for the creditor and court approval of the composition agreement. An inventory is then taken, where all assets are valued. Approval of the agreement requires the affirmative vote of a quorum of either a majority of creditors representing two-thirds of the total debtors, or a quarter of the creditors representing three-quarters of the total debt. Once approved, the agreement must be confirmed by the Court. It then becomes valid and binding on all creditors of claims subject to the agreement.

Bankruptcy proceedings

A company may be declared bankrupt by the court and placed into bankruptcy proceedings if a creditor has successfully requested this, following a debtor’s declaration that it is insolvent. The court will determine whether summary or ordinary proceedings should be applied, or whether bankruptcy proceedings will go ahead (if the assets are insufficient to cover the expected costs of proceedings). The Receiver then draws up an inventory. Summary proceedings are ordered if the proceeds of the assets are unlikely to cover the costs of ordinary proceedings. In this case, there are no creditors’ meetings and the bankruptcy office will proceed to the liquidation and realisation of the assets, without the participation of the creditors.

If ordinary bankruptcy proceedings apply, the receiver publishes a notice of bankruptcy instructing all creditors and debtors to file their claims and debts within 30 days. This notice invites creditors to a first meeting (where they may appoint a private receiver instead of the state bankruptcy office) and a creditors’ committee. A second meeting will be convened for the commencement or continuation of claims against third parties and to agree the method for realisation of the assets belonging to the bankruptcy estate.